An early retirement is difficult – in this economic climate, it's even more difficult. In fact, the stock market’s recent volatility and the downturn in the housing market have caused some retirees to return to work.
Requirements for Early Retirement
The keys to early retirement in the United States are providing for health care and having a steady income stream sufficient to cover expenses for several decades of the retiree’s life expectancy.
To retire early, a retiree needs to have health care needs arranged because Medicare does not become available until age 65. Some occupations allow workers to continue their health insurance after retirement. A spouse who continues to work also can provide health benefits as well as income. The federal COBRA law allows workers to continue their health insurance for 18 months after leaving their job, although they must pay the full cost.
Obstacles to an Early Retirement
Whether it’s credit cards, car payments or a home mortgage, debt is the biggest obstacle to early retirement. Workers can prepare for early retirement by paying off existing debt and not incurring new expenses.
Financial advisers used to tell prospective retirees they needed at least $1 million or more to retire. People who envision a luxurious retirement may need this kind of money.
But these calculations often assumed that expenses in retirement would stay the same. Retirees often can cut expenses by eliminating commuting costs, continuing to use an older car instead of buying a new one and eating lunch at home instead of in restaurants.
Methods to Early Retirement
Moving. Buying a home often is the largest single investment people make and home equity can provide a significant nest egg for retirement. If the mortgage is paid off, the home value has gone up and the home can be sold, for example, some of the money can be invested to provide a retirement income.
Retirees, of course, must live somewhere, but they can preserve some of the proceeds from a home sale by downsizing to a less expensive home or finding a community with lower home prices a few miles away or in another state.
Save More. Many financial experts say retirees should spend no more than 4 percent of their retirement savings per year for it to last through the remainder of their lives. Following these guidelines, a retiree with $500,000 in savings could spend $20,000 a year. Or, assuming they found a company that is both growing more than inflation, and pays more than 4%, they could retire with dividend stocks.
Career Change. For some people, early retirement means a career change and the opportunity to try something they’ve always wanted to do. Whether it is sculpture or running a small store, a career change could provide some retirement income.
Conclusion
Retiring early isn't impossible. There are dozens of websites, guides, and books that give detailed, step-by-step instructions for an early retirement. Retiring early simply requires learning the ropes, figuring out the steps needed to be taken, and then actually taking those steps.
Shaun Connell - Shaun Connell is a writer, publisher, and investor living in central area of the United States. He began working as a part-time freelance ...
